Amid sunsetting federal aid and plunging property values Downtown, Pittsburgh leaders have made no secret of their concerns about the city’s financial future. But in a letter Wednesday, City Controller Rachael Heisler warned Mayor Ed Gainey and City Council that the city needs to act now to course-correct the 2024 budget.
“Several large buildings downtown have recently seen multi-million drops in property values after successful reassessment,” Heisler wrote. “The City could see as much as a 20% reduction in the value of this building stock in 2024, which could cost the City $5.32 million in property tax revenue.”
Pittsburgh’s Downtown neighborhood is grappling with a nationwide trend of plunging real estate value: Many office buildings are seeing high vacancy rates, spurred by the coronavirus pandemic and ongoing hybrid work policies.
Heisler also noted another concern, which WESA reported on last month: The city can no longer count on $4.36 million it had previously budgeted from the facility usage fee, also known as the "jock tax." Courts have decided the 3% tax, charged to out-of-town athletes and performers, violates state law: While the city has asked the state Supreme Court to review the case, it has stopped collecting the tax.
Heisler estimates that the effect of those two changes will amount to a nearly $10 million shortfall. That's roughly 1.4% of the city’s overall revenue projection for 2024.
In her letter, Heisler implored council to reopen the budget and zero out the projected “jock tax” total. Instead, she said the budget should reflect athletes and performers now paying a 1% local earned income tax instead of the 3% facility usage fee.
She cautioned that if the court rulings hold up, the financial hit could be intensified by the cost of paying refunds to property owners and performers.
“We will also owe refunds,” Heisler told WESA. “We just need to have a conversation as a city about realistic expectations for all revenue line items this year.”
The next three years were already expected to be financially precarious for the city, due to scheduled debt payments and the sunsetting of federal coronavirus relief programs. But Heisler argued if the city acts now to reevaluate its financial plan, the coming years could be "a lot less painful."
Otherwise, she warned, she said the city could be hurting this year. too.
“We are going to bring in less money in real estate taxes from our downtown core this year,” she said, noting that Downtown accounts for a quarter of the city’s tax base.
Heisler said the numbers aren’t news to city leaders, but the goal of her letter was to prompt a public discussion about how to redirect the ship before it’s too late.
“There hasn't been a lot of conversation from our elected leaders on the anticipated revenue issues that we're dealing with,” she said. “It would have been great if this conversation had started on council or with the mayor, but it didn't, and I felt a sense of obligation to basically sound the alarm bell.”
The mayor’s office rejected claims that the city needs to act now.
“There is no need to make drastic changes at this time,” the office said in a statement. “As the year progresses, the administration will continue to assess if city services and programming need to adjust.”
Several fifth-floor insiders tell WESA that the city is waiting to see how many reassessment cases move forward before evaluating the financial toll. Property owners have until the end of this month to appeal their property tax assessment.
City Council, on the other hand, appears more urgently concerned about the city's financial picture. Councilman Bobby Wilson has been drafting legislation to expand the city’s tax abatement program downtown in an effort to spur development. The bill, expected to be introduced next week, could encourage more residential development in the Golden Triangle.
Heisler said the idea could be one piece of a larger plan to recover taxes from downtown. Under the plan, developers would get a lower bill after renovating a building, but they’d still owe taxes on what it’s worth today. Heisler said with a growing vacancy rate Downtown, the bill could help stabilize tax revenues.
“The city needs to do everything it can to preserve the Downtown tax base,” she said.
According to Global Commercial Real Estate Services, a commercial real estate agency, Downtown is currently at a 26% vacancy rate. That could climb to 46% during the next five years as leases conclude.
Wilson said Heisler’s letter should be taken “seriously,” as a sign for council and the mayor to “buckle down” and plan ahead.
“We’ve seen the assessments,” he said, arguing that if the city is “without that revenue, we need to account for that.”
City Council President Dan Lavelle agreed that a conversation is worth having. He noted the city reopened the budget to account for ratified contracts with the fire and police unions. He said council will do so again once the city comes to an agreement with unions representing employees in Public Works and the Bureau of Emergency Medical Services.
“Once the reassessment started to hit, a number of us have been having these conversations and discussing what this looks like moving forward,” he said.
But Lavelle said he’s not panicked about reassessed property values yet, because he expects Pittsburgh Public Schools to challenge the lowered values. That would delay any change in revenue.
“While [Heisler’s] point is very valid, we don't know what those actual numbers are going to be,” he said.
Still, he argued the city should start planning now for tighter budgets as it gets squeezed from multiple directions.
“I do believe we need to be proactive,” Lavelle said. “Either figure out ways to bring in additional revenue or cut spending.”
Lavelle suggested that the city should encourage Allegheny County to move forward with a county-wide property reassessment, which he said could address disparities in how properties are valued. He also suggested the city lobby lawmakers in Harrisburg to allow Pittsburgh more power to explore mechanisms like a commuter tax.
As for the mayor, his office said the city is monitoring the financial situation and could make changes to city services if the need arises. The office called the budget a “snapshot in time” that had “already forecasted a drop in revenue and … reflected it.”
But Heisler said beyond balancing the books, the city needs to be more transparent about its plans.
“I think residents are owed that candor about where city finances are,” Heisler said. “I don't believe that they have a full picture of where things are headed if we don't act."
As for how to balance this year’s financial picture, Heisler noted that 2024 is the last year during which the city could use federal pandemic aid to cushion the budget. Roughly $7.2 million of the city’s total pandemic aid package remains available.
But Heisler said balancing the budget is ultimately up to City Council and the mayor.
“I don't know how best they see fit to work together to address some of these issues,” Heisler said. “But any conversation is better than what's happening right now, which is nothing.”
